Dark Spots in the International Commodity Value Chain: The Cases of Copper, Gemstones, and Gold in Zambia

Abstract

This paper investigates mineral export misinvoicing in Zambia as a channel of capital flight, with a focus on copper, gold, and gemstones. The analysis reveals major discrepancies between Zambia’s recorded exports and imports as recorded by its trading partners. In the case of copper, a large share of exports recorded in Zambia as headed to Switzerland does not appear in Swiss imports. The ‘missing copper’ cannot be traced through analysis of trade between Switzerland and its major partners either. Gaps in the opposite direction are observed in Zambia-China trade, suggesting export underinvoicing, a common mechanism of capital flight. These do not offset the gaps observed in mirror trade statistics between Zambia and Switzerland, which remain a mystery. Similarly, whereas the primary destination recorded for Zambian gold exports is South Africa, these do not appear in gold imports recorded by South Africa. The gemstones sector is characterized by high informality that enables smuggling and export underinvoicing. Zambia must implement measures to curb misinvoicing of mineral exports and address structural opacity in the trade value chain if it hopes to maximize the gains from the exploitation of its mineral resources.

This paper is a product of a research project funded by a grant from the 2021 Andrew Carnegie Fellowship from Carnegie Corporation of New York, which is very much appreciated by the Principal Investigator (Léonce Ndikumana). The project examines domestic and global drivers of capital flight from Africa focusing on natural-resource rich countries using Cameroon, Ghana, and Zambia as case studies. Other working papers under the project can be found here: https://peri.umass.edu/research-areas/african-development-policy